- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
Commission File No. 333-30795
RADIO ONE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 52-1166660
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5900 PRINCESS GARDEN PARKWAY,
8TH FLOOR
LANHAM, MARYLAND 20706
(Address of principal executive offices)
(301) 306-1111
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at May 13, 1998
------------------------------------ ---------------------------
Class A Common Stock, $.01 Par Value 138.45
Class B Common Stock, $.01 Par Value 0
- --------------------------------------------------------------------------------
RADIO ONE, INC. AND SUBSIDIARIES
Form 10-Q
For the Quarter Ended March 31, 1998
TABLE OF CONTENTS
Page
PART I FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements 3
Consolidated Balance Sheets as of December 31, 1997 and
March 31, 1998 (Unaudited) 4
Consolidated Statements of Operations for the three months
ended March 30, 1997 and March 31, 1998 (Unaudited) 5
Consolidated Statements of Changes in Stockholders' Deficit
for the year ended December 31, 1997 and for the three
months ended March 31, 1998 (Unaudited) 6
Consolidated Statements of Cash Flows for the three months
ended March 30, 1997 and March 31, 1998 (Unaudited) 7
Notes to Consolidated Financial Statements 8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II OTHER INFORMATION
ITEM 1 Legal Proceedings 13
ITEM 2 Changes in Securities 13
ITEM 3 Defaults upon Senior Securities 13
ITEM 4 Submission of Matters to a Vote of Security Holders 13
ITEM 5 Other Information 13
ITEM 6 Exhibits and Reports on Form 8-K 13
SIGNATURES 14
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
(See pages 4-7 -- This page intentionally left blank.)
3
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997, AND MARCH 31, 1998
ASSETS December 31, March 31,
1997 1998
---------------- ----------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 8,500,000 $ 12,288,000
Trade accounts receivable, net of allowance for doubtful
accounts of $904,000 and $735,000, respectively 8,722,000 7,110,000
Prepaid expenses and other 315,000 345,000
---------------- ----------------
Total current assets 17,537,000 19,743,000
PROPERTY AND EQUIPMENT, net 4,432,000 4,687,000
INTANGIBLE ASSETS, net 54,942,000 57,221,000
OTHER ASSETS 2,314,000 2,266,000
---------------- ----------------
Total assets $ 79,225,000 $ 83,917,000
================ ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 258,000 $ 550,000
Accrued expenses 3,029,000 4,539,000
---------------- ----------------
Total current liabilities 3,287,000 5,089,000
LONG-TERM DEBT AND DEFERRED INTEREST 74,954,000 79,547,000
---------------- ----------------
Total liabilities 78,241,000 84,636,000
---------------- ----------------
COMMITMENTS AND CONTINGENCIES
SENIOR CUMULATIVE REDEEMABLE PREFERRED STOCK:
Series A, $.01 par value, 100,000 shares authorized, 84,843 shares
issued and outstanding 9,310,000 9,661,000
Series B, $.01 par value, 150,000 shares authorized, 124,467 shares
issued and outstanding 13,658,000 14,172,000
STOCKHOLDERS' DEFICIT:
Common stock - Class A, $.01 par value, 1,000 shares authorized,
138.45 shares issued and outstanding - -
Common stock - Class B, $.01 par value, 1,000 shares authorized,
no shares issued and outstanding - -
Additional paid-in capital - -
Accumulated deficit (21,984,000) (24,552,000)
---------------- ----------------
Total stockholders' deficit (21,984,000) (24,552,000)
---------------- ----------------
Total liabilities and stockholders' deficit $ 79,225,000 $ 83,917,000
=============== ================
The accompanying notes are an integral part of these consolidated
balance sheets.
4
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1998
Three Months Ended
-------------------------------------
March 30, March 31,
1997 1998
---------------- ----------------
(Unaudited)
REVENUES:
Broadcast revenues, including barter revenues
of $187,000 and $173,000, respectively $ 6,298,000 $ 9,097,000
Less: Agency commissions 766,000 1,074,000
---------------- ----------------
Net broadcast revenues 5,532,000 8,023,000
---------------- ----------------
OPERATING EXPENSES:
Program and technical 1,196,000 1,635,000
Selling, general and administrative 2,778,000 3,429,000
Corporate expenses 695,000 641,000
Depreciation and amortization 1,079,000 1,773,000
---------------- ----------------
Total operating expenses 5,748,000 7,478,000
---------------- ----------------
Broadcast operating (loss) income (216,000) 545,000
INTEREST EXPENSE, including amortization of
deferred financing costs 1,765,000 2,378,000
OTHER INCOME, net 21,000 130,000
---------------- ----------------
Loss before provision for income taxes (1,960,000) (1,703,000)
PROVISION FOR INCOME TAXES - -
---------------- ---------------
Net loss $ (1,960,000) $ (1,703,000)
================ ==============
The accompanying notes are an integral part of these
consolidated statements.
5
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE THREE MONTHS ENDED MARCH 31, 1998
Common Common Additional Total
Stock Stock Paid-In Accumulated Stockholders'
Class A Class B Capital Deficit Deficit
----------- ----------- ----------- -------------- --------------
BALANCE, as of
December 31, 1996 $ - $ - $ 1,205,000 $ (16,208,000) $ (15,003,000)
Net loss - - - (4,944,000) (4,944,000)
Effect of
conversion to
C corporation - - (1,205,000) 1,205,000 -
Preferred stock
dividends earned - - - (2,037,000) (2,037,000)
----------- ----------- ----------- -------------- --------------
BALANCE, as of
December 31, 1997 - - - (21,984,000) (21,984,000)
Net loss - - - (1,703,000) (1,703,000)
Preferred stock
dividends earned - - - (865,000) (865,000)
----------- ----------- ----------- -------------- --------------
BALANCE, as of
March 31,1998
(Unaudited) $ - $ - $ - $ (24,552,000) $ (24,552,000)
=========== =========== =========== ============== ==============
The accompanying notes are an integral part of these
consolidated statements.
6
RADIO ONE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 30, 1997 AND MARCH 31, 1998
Three Months Ended
--------------------------------------
March 30, March 31,
1997 1998
-------------- --------------
(Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,960,000) $ (1,703,000)
Adjustments to reconcile net loss to net cash from
operating activities:
Depreciation and amortization 1,079,000 1,773,000
Amortization of debt financing costs and
unamortized discount 66,000 55,000
Deferred interest 643,000 843,000
Effect of change in operating assets and liabilities-
Trade accounts receivable 950,000 1,612,000
Prepaid expenses and other (218,000) (30,000)
Other assets - 48,000
Accounts payable 759,000 292,000
Accrued expenses 385,000 1,510,000
-------------- --------------
Net cash flows from operating activities 1,704,000 4,400,000
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (119,000) (612,000)
-------------- --------------
Net cash flows from investing activities (119,000) (612,000)
-------------- --------------
INCREASE IN CASH AND CASH EQUIVALENTS 1,585,000 3,788,000
CASH AND CASH EQUIVALENTS, beginning of period 1,708,000 8,500,000
-------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 3,293,000 $ 12,288,000
============== ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for-
Interest $ 695,000 $ -
============== =============
Income taxes $ - $ -
============== =============
The accompanying notes are an integral part of these
consolidated statements.
7
RADIO ONE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization and Business
Radio One, Inc. (a Delaware corporation referred to as Radio One) and its
subsidiaries, Radio One Licenses, Inc. (successor by merger to Radio One
Licenses LCC) and WYCB Acquisition Corporation (Delaware corporations)
(collectively referred to as the Company) were organized to acquire, operate and
maintain radio broadcasting stations. The Company owns and operates four radio
stations in Washington, D.C.; WOL-AM, WMMJ-FM, WKYS-FM and WYCB-AM, four radio
stations in Baltimore, Maryland; WWIN-AM, WWIN-FM, WOLB-AM and WERQ-FM and one
radio station in Philadelphia, Pennsylvania; WPHI-FM. The Company is highly
leveraged, which requires substantial semi-annual interest payments and may
impair the Company's ability to obtain additional working capital financing. The
Company's operating results are significantly affected by its market share in
the markets that it has stations.
Interim Financial Statements
The consolidated financial statements for the three months ended March 30, 1997
and March 31, 1998, are unaudited, but in the opinion of management, such
financial statements have been presented on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments necessary for a fair presentation of the
financial position, and results of operations and cash flows for these periods.
As permitted under the applicable rules and regulations of the Securities and
Exchange Commission, these financial statements do not include all disclosures
normally included with audited consolidated financial statements, and,
accordingly, should be read in conjunction with the consolidated financial
statements and notes thereto as of December 31, 1996 and 1997, included in the
Company's Form 10-K filed. The results of operations presented in the
accompanying consolidated financial statements are not necessarily
representative of operations for an entire year.
Basis of Presentation
The accompanying consolidated financial statements include the accounts of Radio
One and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The accompanying
consolidated financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities as of the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
8
WYCB-AM Acquisition
On March 16, 1998, WYCB Acquisition Corporation, an unrestricted subsidiary of
Radio One, acquired all the stock of Broadcast Holdings, Inc. for $3,750,000.
The acquisition was financed with a promissory note for $3,750,000 at 13% due
2001, which pays quarterly cash interest payments at an annual rate of 10%
through 2001, with the remaining interest being added to the principal balance.
In conjunction with the issuance of the promissory note, WYCB Acquisition
Corporation granted a security interest in all of the stock and assets of
Broadcast Holdings, Inc. to Allied Capital Financial Corporation ("Allied").
Allied also received a Stock Purchase Warrant from Radio One which entitles it
to acquire up to 40,000 shares of Series A Preferred Stock of Radio One if WYCB
Acquisition Corporation defaults on the payment of the promissory note, and the
stock and assets of Broadcast Holdings, Inc. are insufficient to pay the entire
amount owed under the promissory note. The operations of WYCB-AM have been
included in the consolidated statement of operations of Radio One since the
acquisition date. The acquisition of Broadcast Holdings, Inc. is not material to
the Company.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following information should be read in conjunction with the unaudited
consolidated financial statements and notes thereto included in this Quarterly
Report and the audited financial statements and Management Discussion and
Analysis combined in the Company's Form 10-K filed for the year ended December
31, 1997.
RESULTS OF OPERATIONS
Comparison of periods ended March 30, 1997 to the periods ended March 31,
1998.
Three months Three months
ended ended
March 30, March 31,
1997 1998
---------------- ---------------
STATEMENT OF OPERATIONS DATA:
Net broadcast revenues $ 5,523,000 $ 8,023,000
---------------- ---------------
Operating expenses excluding
depreciation and amortization 4,669,000 5,705,000
Depreciation and amortization 1,079,000 1,773,000
---------------- ---------------
Broadcast operating income (loss) (216,000) 545,000
Interest expense 1,765,000 2,378,000
Other income, net 21,000 130,000
---------------- ---------------
Loss before provision for income
taxes (1,960,000) (1,703,000)
Provision for income taxes - -
---------------- ---------------
Net loss $ (1,960,000) $ (1,703,000)
============== =============
OTHER DATA:
Broadcast cash flow (a) $ 1,558,000 $ 2,959,000
Broadcast cash flow margin 28.2% 36.9%
Operating cash flow (b) $ 863,000 $ 2,318,000
Operating cash flow margin 15.6% 28.9%
Corporate Expenses $ 695,000 $ 641,000
Net broadcast revenues increased to approximately $8.0 million for the
three months ended March 31, 1998 from approximately $5.5 million for the three
months ended March 30, 1997 or 45.5%. This increase in net broadcast revenues
was the result of significant broadcast revenue growth in both the Company's
Washington, DC and Baltimore, MD markets as the Company benefited from
historical ratings increases at its larger radio stations, improved power ratios
at these stations as well as industry growth in each of these markets.
Additional revenue gains were derived from various special events held and/or
sponsored by the Company in the first quarter as well as from the Company's
acquisition of radio station WPHI-FM in Philadelphia, PA in early-1997.
Operating expenses excluding depreciation and amortization increased to
approximately $5.7 million for the three months ended March 31, 1998 from
approximately $4.7 million for the three months ended March 30, 1997 or 21.3%.
This increase in expenses was primarily related to increases in sales
commissions and license fees due to significant revenue growth, and additional
programming costs related to ratings gains experienced by the Company's overall
growth.
10
Broadcast operating income increased to $545,000 for the three months ended
March 31, 1998 from ($216,000) for the three months ended March 30, 1997. This
increase was attributable to the increases in broadcast revenues partially
offset by higher operating expenses and higher depreciation and amortization
expenses associated with the WPHI-FM acquisition.
Interest expense increased to approximately $2.4 million for the three
months ended March 31, 1998 from approximately $1.8 million for the three months
ended March 30, 1997 or 33.3%. This increase relates primarily to the May 19,
1997 issuance of the Company's approximately $85.5 million in 12% Senior
Subordinated Notes Due 2004 and the associated retirement of the Company's
approximately $45.6 million bank credit facility which was in place prior to
that time and was redeemed with the proceeds from the Notes Offering.
Other income increased to $130,000 for the three months ended March 31,
1998 from $21,000 for the three months ended March 30, 1997. This increase was
primarily attributable to higher interest income due to higher cash balances
associated with the Company's cash flow growth and capital raised in the
Company's 1997 Notes Offering.
Loss before provision for income taxes decreased to approximately $1.7
million for the three months ended March 31, 1998 from approximately $2.0
million for the three months ended March 30, 1997 or 15.0%. This decrease was
due to higher operating income and other income partially offset by higher
interest expense associated with the Company's 1997 Notes Offering.
Net loss decreased to approximately $1.7 million for the three months ended
March 31, 1998 from approximately $2.0 million for the three months ended March
30, 1997 or 15.0%. This decrease was due to higher operating income and other
income partially offset by higher interest expense associated with the Company's
1997 Notes Offering.
Broadcast cash flow increased to approximately $3.0 million for the three
months ended March 31, 1998 from approximately $1.6 million for the three months
ended March 30, 1997 or 87.5%. This increase was attributable to the increase in
broadcast revenues partially offset by higher operating expenses as described
above.
Operating cash flow increased to approximately $2.3 million for the three
months ended March 31, 1998 from $863,000 for the three months ended March 30,
1997 or 166.5%. This increase was attributable to the increases in broadcast
revenues partially offset by higher operating expenses and higher corporate
expenses as described above.
(a) "Broadcast cash flow" is defined as broadcast operating income plus
corporate expenses and depreciation and amortization of both tangible and
intangible assets. The Company has presented broadcast cash flow data,
which the Company believes is comparable to the data provided by other
companies in the industry, because such data are commonly used as a measure
of performance for broadcast companies. However, broadcast cash flow does
not purport to represent cash provided by operating activities as reflected
in the Company's consolidated statements of cash flow, is not a measure of
financial performance under generally accepted accounting principles and
should not be considered in isolation or as a substitute for measure of
performance prepared in accordance with generally accepted accounting
principles. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(b) "Operating cash flow" is defined as broadcast cash flow less corporate
expenses and is a commonly used measure of performance for broadcast
companies. Operating cash flow does not purport to represent cash provided
by operating activities as reflected in the Company's consolidated
statements of cash flow, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measure of performance prepared in
accordance with generally accepted accounting principles.
11
LIQUIDITY AND CAPITAL RESOURCES
The capital structure of the Company consists of the Company's outstanding
long-term debt, preferred stock and stockholders' deficit. The stockholders'
deficit consists of common stock and accumulated deficit. The Company's balance
of cash and cash equivalents was $8.5 million as of December 31, 1997. The
Company's balance of cash and cash equivalents was approximately $12.3 million
as of March 31, 1998. The Company's primary source of liquidity is cash provided
by operations.
Net cash flow from operating activities increased to approximately $4.4
million for the three months ended March 31, 1998 from approximately $1.7
million for the three months ended March 30, 1997 or 158.8%. This increase was
due to a lower net loss offset by higher non-cash charges and lower outstanding
accounts receivable at the end of the first quarter, which is traditionally the
slowest quarter of the year from a revenue perspective. Non cash expenses of
depreciation and amortization increased to approximately $1.8 million for the
three months ended March 31, 1998 from approximately $1.1 million for the three
month months ended March 30, 1997 or 63.6% due to the acquisition of radio
station WPHI-FM in the second quarter of 1997 as well as leasehold improvements
made to the Company's new headquarters and Washington, DC radio studios in the
second half of 1997.
Net cash flow used in investing activities increased to $612,000 for the
three months ended March 31, 1998 compared to $119,000 for the three months
ended March 30, 1997 or 414.3%. During the three months ended March 31, 1998,
the Company made purchases of capital equipment totaling $612,000. During the
three months ended March 30, 1997 the Company made purchases of capital
equipment totaling $119,000.
12
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the first quarter of 1998, the Company's stockholders approved an
increase in the number of authorized shares of 15% Series A Cumulative
Redeemable Preferred Stock from 100,000 to 140,000.
During the first quarter of 1998, Broadcast Holding, Inc.'s stockholders
approved an amendment to the bylaws to increase the number of directors to five
and elected five individuals to serve as directors.
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RADIO ONE, INC.
----------------------------------------------------
May 13, 1998 Scott R. Royster
Executive Vice President and Chief Financial Officer
(Principal Accounting Officer)
14
5
1
US DOLLARS
YEAR 3-MOS 3-MOS
DEC-31-1997 DEC-31-1997 DEC-31-1998
JAN-01-1997 JAN-01-1997 JAN-01-1998
DEC-31-1997 MAR-30-1997 MAR-31-1998
1 1 1
8,500,000 0 12,288,000
0 0 0
9,626,000 0 7,845,000
(904,000) 0 (735,000)
0 0 0
17,537,000 0 19,743,000
7,819,000 0 8,332,000
(3,387,000) 0 (3,645,000)
79,225,000 0 83,917,000
3,287,000 0 5,089,000
74,954,000 0 79,547,000
0 0 0
22,968,000 0 23,833,000
0 0 0
(21,984,000) 0 (24,552,000)
79,225,000 0 83,917,000
0 6,298,000 9,097,000
0 6,298,000 9,097,000
0 (766,000) (1,074,000)
0 (766,000) (1,074,000)
0 5,748,000 7,478,000
0 212,000 326,000
0 1,765,000 2,378,000
0 (1,960,000) (1,703,000)
0 0 0
0 (1,960,000) (1,703,000)
0 0 0
0 0 0
0 0 0
0 (1,960,000) (1,703,000)
0 0 0
0 0 0
